Class 03.

Question 1

what variables are increased by debits?

Answer 1

1. assets
2. expenses
3. dividends

Question 2

what variables are increased by credits?

Answer 2

1. liabilities
2. shares (CC)
3. revenue

Question 3

what is identical to A = L + E ?

Answer 3

A + E + D = L + S + R

Question 4

what are characteristics of DR accounts?

Answer 4

1. BB on L
2. Increase on L
3. Decrease on R
4. EB on L

Question 5

what are characteristics of CR accounts?

Answer 5

1. BB on R
2. Increase on R
3. Decrease on L
4. EB on R

Question 6

when are journal entries done?

Answer 6

in real time

Question 7

when are adjusted entires done?

Answer 7

at the quarter/yearly end

Question 8

why are adjusted entries done later?

Answer 8

matching principle + some transactions don’t reflect true value

Question 9

what are 5 types of adjusting entries?

Answer 9

prepaid + accrued expense & accrued + unearned revenue & depreciation

Question 10

how are each adjusting entries categorized?

Answer 10

1. prepaid + accrued expense = A
2. accrued + unearned revenue = L
3. depreciation = expense

Question 11

how do you approach journal + adjusted entries?

Answer 11

account the initial transactions + changes to be factored by the year end

Question 12

solutions to problem E2.6

Answer 12

1. dr. AR (750)
   cr. service revenue (750)
2. dr. utilities expense (520)
   cr. AP (520)
3. dr. depreciation
   cr. interest
4. dr. interest expense
   cr. interest payable
5. dr. insurance expense (1000)
   cr. prepaid insurance (1000)
6. dr. supplies expense (1100)
   cr. supplies (1100)

Question 13

solutions to problem E2.7 (tip: draw T charts)

Answer 13

1. BB 800 (solve for x)
   dr. 850
   cr. 950
   ED 700
2. August 1
   Backdate from Jan 1
   400 Premium x 12 = 4800
   2400/4800 = 6 months

(calculate when plan started from the prepaid insurance)

3. BB 1500 (solve for x)
   dr. 2500
   cr 1800
   ED 800
4. BB 1150 (solve for x)
   dr. 2000
   cr. 1600
   ED 750

(service revenue = received unearned revenue but earned it later)

Question 14

how are accrual vs cash accounts affected?

Answer 14

1. Sales revenue (affects accrual/cash partially)
2. COGS (affects accrual)
3. Inventory (affects accrual/cash partially)
4. Wages (both affected)
5. Utilities (affects accrual)
6. Rental income (affects accrual)